Networks hesitant on Apple’s push for 99¢ TV episodes

Apple has supposedly been pitching networks on lower prices for TV shows, cutting the current standard from $1.99 to 99¢. If a report in the New York Times is accurate, it seems that most networks have been reluctant to consider lowering prices for two reasons: they fear the lower price will devalue the content, and doing so may give Apple more control than they would like.

Though iTunes music sales have been a success in the face of dropping CD sales and increasing P2P file sharing—Apple is already gearing up to commemorate 10 billion songs downloaded—two-dollar TV episodes have only been downloaded about 375 million times. Apple is trying to convince networks that 99¢ will make TV shows more palatable and drive increasing sales.

Disney and CBS have been reported to express an interest in lowering prices, with CBS CEO Leslie Moonves going so far as to mention lowering prices on some shows during a recent quarterly earnings call. Other networks haven't said anything publicly, but are mulling the idea. "We're willing to try anything, but the key word is 'try,'" said an unnamed TV network executive that spoke to the Times.

With the relatively low number of sales, TV episodes sold via iTunes represent only a tiny portion of the revenue generated via DVD sales by comparison. TV executives have little data to show that increased sales would make up for the lost revenue of lower prices.

They also fear setting consumer expectations too low. "If you took five things at Walmart and sold them for a nickel, they’d sell really well, because they'd stand out," another TV network executive explained to the Times. "But if you took everything in the store and made it a nickel, nothing stands out anymore. Essentially all you’ve done is lowered the value of your content."

Though Apple has made a recent push to lower prices to coincide with the launch of its iPad, it worth noting this isn't the first time Apple has tried to convince networks of the wisdom of dropping prices to spur sales. Apple pitched the idea back in 2007, and networks balked at doing so then. They feared lowering prices would cannibalize DVD sales, while NBC pointed out that lowering prices would mainly benefit Apple. "It is clear that Apple's retail pricing strategy for its iTunes service is designed to drive sales of Apple devices, at the expense of those who create the content that make these devices worth buying," said NBC Universal executive VP Cory Shields at the time.

The matter is not merely one of balancing pricing with demand, however. Sanford Bernstein analyst Craig Moffett notes that the issue is "one of a battle for control, and of the ultimate balance of power between content, distribution, devices, and applications." Apple became one of the largest retailers of music worldwide, and record labels have collectively bemoaned the amount of control that gave Apple in distribution.

Networks are as leery of that control as music executives. NBC Universal famously got into a skirmish with Apple over iTunes pricing control and DRM issues, with the network wanting to set higher prices on some shows and use more restrictive DRM. Apple effectively told the network to get lost, and the company took its TV shows and movies with them. After eight months, NBC brought its content back, capitulating to the TV show prices for the most part, though it also got some flexibility in pricing for both TV and movies.

Still, consumer expectations are shifting in an on-demand world towards options that are affordable, easy to use, and let them consume media when and where they want to. Digital distribution is a key part of meeting that expectation. iTunes still competes with the likes of Netflix and Hulu as well as traditional cable subscriptions. And those are just the options that are ad-supported and/or cost money—downloading TV episodes via P2P networks is fairly easy, and those files aren't hampered by DRM.

The standard 99¢ price for songs proved a strong catalyst for sales, and the ease of use and consistent quality of the tracks made it a very popular alternative to P2P file sharing. Evidence has shown that attempts by record labels to charge more for some songs haven't generated the expected increases in revenues, and may have been a factor in decreasing sales.

Ultimately, by not embracing online distribution and offering prices that consumers find reasonable, TV content producers run the risk of repeating the same mistakes that left the music industry scrambling to keep up with consumers that had moved to getting content online. Cable and broadcast will still be around for a long time, but it would be unwise to count on those models lasting forever.